CenturyLink 2015 Annual Report Download - page 118

Years Ended
December 31, Increase /
(Decrease)
%
Change2014 2013
(Dollars in millions)
Cost of services and products (exclusive of depreciation and
amortization) ............................................. $ 7,846 7,507 339 5 %
Selling, general and administrative .............................. 3,347 3,502 (155) (4)%
Depreciation and amortization .................................. 4,428 4,541 (113) (2)%
Impairment of goodwill ....................................... — 1,092 (1,092) nm
Total operating expenses ...................................... $15,621 16,642 (1,021) (6)%
nm—Attributing changes in impairment of goodwill to the 2013 goodwill impairment charge are considered not
meaningful.
Cost of Services and Products (exclusive of depreciation and amortization)
Cost of services and products (exclusive of depreciation and amortization) decreased by $68 million, or 1%,
for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Excluding the lower
customer premises equipment costs, cost of services and products increased by $56 million for the year ended
December 31, 2015 as compared to the year ended December 31, 2014. The increase in costs of services and
products was primarily due to increases in pension and postretirement costs, USF rate increases, higher network
expenses and increases in content costs for Prism TV. These increases were partially offset by decreases in
salaries and wages from lower headcount, professional fees and contract labor costs. Cost of services and
products (exclusive of depreciation and amortization) increased by $339 million, or 5%, for the year ended
December 31, 2014 as compared to the year ended December 31, 2013 primarily due to increases in employee-
related costs (which was significantly impacted by the below-noted lump sum pension payments), customer
premises equipment installation expenses related to the increase in data integration revenues, facility and network
costs, real estate and power costs and content costs for Prism TV.
Selling, General and Administrative
Selling, general and administrative expenses decreased by $19 million, or less than 1%, for the year ended
December 31, 2015 as compared to the year ended December 31, 2014. The decrease in selling, general and
administrative expenses was primarily due to lower benefit expenses, insurance costs and asset impairment
charges. These decreases were partially offset by increases in bad debt expense, external commissions and
regulatory fines of $15 million associated with a 911 system outage. Selling, general and administrative expenses
decreased by $155 million, or 4%, for the year ended December 31, 2014 as compared to the year ended
December 31, 2013 primarily due to a charge in 2013 of $235 million in connection with a litigation settlement.
The decrease was partially offset by increases in employee-related costs (including severance costs), insurance
costs and impairment charges related to office buildings sold and currently being held for sale.
Pension Lump Sum Offer
Our pension plan contains provisions that allow us, from time to time, to offer lump sum payment options to
certain former employees in settlement of their future retirement benefits. We record an accounting settlement
charge associated with these lump sum payments only if, in the aggregate, they exceed the sum of the annual
service and interest costs for the plan’s net periodic pension benefit cost, which represents the settlement
threshold. In September 2015, we offered to make cash settlement payments in December 2015 to a group of
former employees provided they accepted the offer by the end of October 2015. During the fourth quarter of
2015, we made cash settlement payments for the lump sum offer of approximately $356 million. The total
amount of the lump sum settlement payments for the year ended December 31, 2015, which included the lump
sum offer and lump sum elections from employees who terminated employment during the year, was less than
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